The Federal Reserve must continue to spur economic growth as indicators for inflation and employment remain far from the central bank’s goals, Chair Janet Yellen said.
“A high degree of monetary accommodation remains warranted,” Yellen said today in testimony prepared for delivery to the Joint Economic Committee of Congress. “Many Americans who want a job are still unemployed,” and inflation is below the central bank’s 2 percent target, she said.
Data show “solid growth” in the second quarter, bolstering the case for a faster expansion this year,Yellen said. Gains in household wealth from rising home prices, less drag from federal and state and local budgets, and stronger growth abroad should all drive investment and consumption.
The Fed chair cited the slowdown in U.S. housing as a risk, along with “heightened geopolitical tensions” and financial stress in emerging markets.
“While conditions in the labor market have improved appreciably, they are still far from satisfactory,”Yellen said. She called the unemployment rate, which stood at 6.3 percent in April, “elevated,” and said the share of the labor force that has been unemployed for more than six months, as well as those working part-time who would prefer full-time work, “are at historically high levels.”
Stocks declined after her comments, with the Standard & Poor’s 500 Index losing 0.2 percent to 1,863.30 at 10:11 a.m. in New York. The yield on the 10-year Treasury note fell one basis point, or 0.01 percentage point, to 2.58 percent.
Payrolls rose last month by 288,000 in the biggest gain in two years, and the jobless rate was the lowest since September 2008, according to a May 2 Labor Department report.
The number of Americans working part-time because they couldn’t find full-time jobs rose by 54,000 to 7.47 million, while the labor-force participation rate slumped to 62.8 percent, matching the lowest level since 1978. Average hourly earnings growth tumbled to 1.9 percent from a year earlier, the weakest gain since March 2013.
Still, signs of strength in the economy and a steady pace of job gains are allowing the Fed to gradually reduce the pace of bond purchases intended to boost growth.
Yellen said “sufficient underlying strength” made the measured reductions in bond purchases “appropriate.” At the same time, the Fed has said its key interest rate is likely to remain close to zero for a “considerable time” after the asset buying ends.
Fed officials last week trimmed stimulus for the fourth consecutive meeting, saying the economy has strengthened after harsh winter weather slowed growth to a 0.1 percent annual pace in the first quarter.
Policy makers cut monthly bond purchases by $10 billion to $45 billion and are on track to halt buying in the second half of 2014. Gross domestic product will expand at a 3 percent annualized rate this quarter and next before accelerating to 3.1 percent in the final quarter of this year, according to the median of economist estimates compiled by Bloomberg.
“The key data have been unambiguously strong,” Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York, said before Yellen spoke.
The Fed has pushed forward the biggest stimulus in its 100- year history, holding the main interest rate near zero since December 2008 and pumping up its balance sheet to almost $4.3 trillion. Central bank officials have said they aren’t getting much help from Congress.
In statements released after the last three meetings, policy makers said “fiscal policy is restraining economic growth, although the extent of restraint is diminishing.”